Fundamental Analysis Of Expleo Solutions – Future Plans, Financials & More
Fundamental Analysis of Expleo Solutions: The rise in globalization has led to immense demand for enterprises to undergo digital transformation. This transformation leverages digital technologies to upgrade how businesses operate & create value for their shareholders. The Company we will talk about today is a pioneer in this transformational space specializing in testing services, automation […] The post Fundamental Analysis Of Expleo Solutions – Future Plans, Financials & More appeared first on Trade Brains.
Fundamental Analysis of Expleo Solutions: The rise in globalization has led to immense demand for enterprises to undergo digital transformation. This transformation leverages digital technologies to upgrade how businesses operate & create value for their shareholders.
The Company we will talk about today is a pioneer in this transformational space specializing in testing services, automation & other digital services. Let’s delve into learning more about what this Company does, while also taking a brief look at its financials, return ratios, and other important metrics.
Fundamental Analysis of Expleo Solutions – Company Overview
Expleo Solutions is a global engineering, technology, and consulting service provider, part of the larger Expleo Group. The Company partners with leading organizations guiding them towards digital transformation of their enterprise. Currently headquartered in Chennai, the Company owns subsidiaries in the USA, UK, UAE and Singapore.
It also has branches in the Philippines and Belgium along with Global delivery centres in Mumbai & Coimbatore. Expleo Solutions has a successful track record of operating for more than 30 years in India, APAC, USA, UK, Europe, and the Middle East. It currently serves Banking & Financial Services and Insurance clients across technology and digital transformation programs.
The Company currently serves 221 clients, out of which 27 clients generate a revenue of more than a million USD for the Company, and 29 clients fall in the $0.5Mn-$1Mn category. Europe & Asia are Expleo’s biggest markets contributing to 48% and 41% of its revenue.
In May of 2022, Expleo announced the acquisition of Lucid Technologies & Solutions (Lucid), a specialist in data governance, data privacy and protection, and augmented analytics. The takeover gave Expleo access to all of Lucid’s intellectual property (IP), business contracts, and staff, comprising a talented team of 50 data specialists located in India and the USA.
Lucid has a client portfolio consisting of Fortune 500 companies and unicorns across various industries, including BFSI, Healthcare, Retail, and Manufacturing. The acquisition will strengthen Expleo’s capabilities in Data Governance, security & consulting capabilities complementing its overall Data Management practice.
Industry Overview
Global GDP in FY23 was affected by the Russia-Ukraine war and resultant dislocations in supply chains, leading to surging food and energy inflation. Central banks raised interest rates sharply in response. As a result, the global GDP is estimated to have grown at a more subdued 3.4% in 2022, versus 5.9% in the prior year.
Global technology spending on Enterprise software and IT services crossed the $2 trillion mark in 2022, growing 5.5% YoY. IT services grew 3.5% YoY, to $1,250 billion. This growth was led by increased cloud adoption, a preference for external expertise, and expanding the scope of digital transformation to cover more back-office operational areas.
Due to unprecedented macroeconomic uncertainty, enterprises are exploring innovative ways to meet customer demands and unlock operational efficiencies and cost savings. The hyper-competitive demand for talent is also compounding challenges for enterprises that are already contending with supply chain disruption.
As per a report published by the Business Transformation Index (BTI), Machine Learning (ML) and Artificial Intelligence (AI) are the focus areas over the next 1-2 years. It forecasts that global investment in AI will exceed $420 Billion by 2028.
Apart from developments in AI, the industry is looking towards unlocking the potential of Web3, blockchain, and Decentralized Finance (DeFi). The upcoming years are set to be the benchmark years with new regulatory frameworks such as Markets in Crypto-Assets regulations) coming into force in the European Union countries.
Fundamental Analysis Of Expleo Solutions – Financials
Revenue & Net Profit
Expleo solutions reported revenue from operations of Rs. 903 Cr in FY23, which increased by 22% from Rs. 743 Cr in FY22. The Company’s revenues have been quite volatile in the past 5 years, with a drop in revenue in FY20, followed by a 147% jump in FY22.
Net Profit however remains rather consistent, with just 10% profit growth in FY19-20 to 98% in FY21-23. During FY22, the Company reported Net Profits of Rs. 68 Cr which nearly doubled to reach Rs. 134 Cr in FY23.
The significant rise in Net Profits came as a result of a decrease in Other Expenses and a 1.67x increase in Other Income from Rs. 6 Cr in FY22 to Rs. 16 Cr in FY23. In the Long Term, Revenue & Net Profits of the Company grew at the rate of 34% and 39% CAGR respectively.
| Fiscal Year | Gross Revenue | Net Profit |
|---|---|---|
| 2023 | ₹903.30 | ₹133.89 |
| 2022 | ₹742.54 | ₹67.68 |
| 2021 | ₹300.89 | ₹50.44 |
| 2020 | ₹270.22 | ₹39.90 |
| 2019 | ₹282.77 | ₹36.20 |
| 4-Year CAGR | 33.69% | 38.68% |
Profit Margins
The operating Margins of the Company have been consistently above the 20% range. Although margins were squeezed back in FY22 falling to 17%, they have successfully recovered since then to reach 23.5% in FY23.
Net Profit Margins of the Company follow the same pattern, as they were more or less consistently above 12% in the last 5 years, barring the year FY22 when margins hit an all-time low of 9.04%.
| Fiscal Year | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|
| 2023 | 23.52% | 14.56% |
| 2022 | 17.38% | 9.04% |
| 2021 | 24.57% | 16.47% |
| 2020 | 21.94% | 14.35% |
| 2019 | 20.48% | 12.54% |
| 5 Year Average | 21.58% | 13.39% |
Return Ratios
Expleo solutions reported a Return on Equity & Return on Capital Employed of 29% and 38% respectively. These strong numbers show that the Company has well-established itself and can generate consistent returns with low capital requirements.
| Fiscal Year | RoE | RoCE |
|---|---|---|
| 2023 | 28.96% | 38.09% |
| 2022 | 22.69% | 35.12% |
| 2021 | 28.49% | 37.41% |
| 2020 | 27.42% | 36.69% |
| 2019 | 27.07% | 39.92% |
| 5 Year Average | 26.93% | 37.45% |
Debt Analysis
While conducting the fundamental analysis of Expleo solutions we saw that the company remains virtually debt-free, with the only debt being Rs. 22 Cr worth of lease liabilities. Apart from this, the Company has neither short-term nor long-term debt.
Due to its lease liabilities the Company has a Debt-to-Equity ratio of 0.04x for the past two financial years. Interest Coverage ratio remains in the high double-digit multiple as the Company remains debt-free while generating stable income.
| Fiscal Year | Debt / Equity | Interest Coverage |
|---|---|---|
| 2023 | 0.04 | 83.35 |
| 2022 | 0.04 | 92.00 |
| 2021 | 0.02 | 65.54 |
| 2020 | 0.00 | 49.69 |
| 2019 | 0.00 | 766.29 |
| 5 Year Average | 0.02 | 211.37 |
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Fundamental Analysis Of Expleo Solutions – Key Metrics
The Key Metrics of Expleo Solutions are given below.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹1,373.05 | Market Cap (Cr.) | ₹2,146.15 |
| EPS | ₹86.27 | Stock P/E (TTM) | 17.63 |
| ROE (%) | 28.96% | ROCE (%) | 38.09% |
| Promoter Holding | 71.05% | FII Holding | 0% |
| Debt to Equity | 0.04 | Price to Book Value | 4.27 |
| Operating Profit Margin | 23.52% | Net Profit Margin | 14.56% |
Fundamental Analysis of Expleo Solutions – Future Plans
- Expleo solutions is currently building capabilities in digital assurance, DevOps automation, and key banking/ERP solutions.
- The Company sees greater demand coming from the Aeronautics & Aerospace segments, in the last few months. Two large customers have moved to India.
- As per an Analyst call held in September 2023, Expleo reported that its clients from the $0.5Mn-$1Mn category dropped from 29-15. This is not related to Company losing any clients, but just a cut in technological spending from clients.
- In the future, the Company is looking at slow growth in demand as its customers are cutting costs which were spent on digital transformation. However, these changes are expected to be temporary.
Conclusion
Expleo Solutions is a formidable player in the technology consulting space. The recent acquisition of Lucid Technologies has expanded its strengths in the data analytics, governance and privacy space. The acquisition brings in more diversification as well as allows the Company to cash in on the data security segment.
Financially, the Company stands strong with stable revenue & earnings in the 30%+ growth rate. In terms of margins, the Company has always been rather thin as compared to its peers. However, it makes up for the thin margins with high return on Equity & Capital Employed.
Nevertheless, soon the Company has forecasted rather slow growth because of the rising global inflationary pressures. Although temporary, this will impact the strong growth rate of the Company. So what do you think of Expleo Solutions? Do you think its currently a good buy, priced at a Price to Earnings of around 18x PE?
That is all for this article on Fundamental Analysis Of Expleo Solutions. Let us know your thoughts in the comment section below.
Written by Nasir Hussain
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The post Fundamental Analysis Of Expleo Solutions – Future Plans, Financials & More appeared first on Trade Brains.
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